Public Bill Committee

[Sir Nicholas Winterton in the Chair]

Clause 3

Automatic enrolment

Question proposed, That the clause stand part of the Bill.

Nigel Waterson: I am happy to out myself as someone who missed the boat on the last group of amendments, but I shall say a couple of things that I might have said in that context in this stand part debate. I have two points to make. First, the Minister has developed a mantra about auto-enrolment as if it were an everyday occurrence. Apart from the fact that he conceded that there is an issue of degree in any event, moving from however many he thinks are auto-enrolling at the moment in existing schemes to what is fervently hoped will be mass auto-enrolment of up to 10 million people under personal accounts is a very different kettle of fish. I think that we can all accept that.
The National Association of Pension Funds sent me some Department for Work and Pensions figures suggesting that only 3 per cent. of employers who are currently contributing 3 per cent. or more to pension schemes use auto-enrolment. I do not know quite how that reads across to the figures the Minister has quoted. I think he refers to Tesco. There seems to be a conflict of evidence there. In any event we would still argue that we are in a totally different ball game in terms of auto-enrolment under the Bill.
The other point is more an attempt to try to tidy up where we go from here on pay to save and means-testing generally. I appreciate that consensus building is unlikely to extend as far as giving the official Opposition credit for raising particular issues which have been adopted by the Government, but I am delighted to hear that while we were screaming about means-testing and its effect on personal accounts in a different part of the same forest Age Concern was saying much the same thing. It all comes to the same in the end. Again, I should like to welcome the discussions that are now foreseen by the Minister.
We did not support the Bill on Second Reading for precisely the reason that I have set out on means-testing. It is perhaps an indication of how far we have come and how quickly that we did not pursue the amendments and the new clause in the last group as a result of what the Minister said. It would have been the height of churlishness. I never like to think of myself as churlish; that may be alright for the Liberal Democrats, but not for us. Conservatives are not into churlishness in any shape or form. It would have been churlish to have caused a rumpus or even a vote over those matters. I should just like to place it on the record that we are delighted, whoever is given the credit in public for this movement forward on these big and important issues, that that movement has happened.

Andrew Selous: Without wanting in any way to fall foul of your instruction to the Committee to have a short stand part debate, Sir Nicholas, I crave your indulgence because there are two completely new issues that we have not touched on at all which are significant in relation to clause 3. Of course, you could rule me out of order at any point should you think that I am straying into territory that we have already debated, Sir Nicholas. However, there are two issues that we have not touched on that are absolutely central to the Bill and which relate to clause 2.

Nicholas Winterton: Order. The hon. Gentleman is always so reasonable, and I am quite relaxed this afternoon, but “short” is a matter of interpretation.

Andrew Selous: Being six foot five and a half, I am pleased to hear that.
The first issue that we have not so far debated is the age 22 stipulation in paragraph (1)(a). It is a slightly different state of affairs from the point I raised when I spoke to amendment No. 1 on clause 1. That was about the fact that over 75s were forbidden or unable to be part of the personal accounts scheme. Of course, because we have agreed on clause 1, people between 16 and 22 will have a right to enrol on the personal accounts scheme. However, I want to tease out the Minister’s thinking on why the core age runs purely between age 22 and the state pension age. A person could have six wasted years between ages 16 and 22, when they have started their working lives but are not in the personal accounts scheme. We are all keen to get people into the savings habit as early as possible, given the huge deficiencies in people’s pension pots that have come to light in recent years. If a young person begins their working life earning perhaps £5,035 per year, would it not be sensible to auto-enrol them? Of course, they would have the option to come out if they thought that they were going to be in a particular job for only a short period, or if they wish to study, or for whatever other reason.
I am mindful of placing too many burdens on businesses, and some young people move in and out of jobs frequently early in their careers, but that is not the case for all young people. I would welcome further elucidation from the Minister on the six-year gap between the ages of 16 and 22. My guess is that few people who are aged between 16 to 21 will actually step up to the bar and choose to be auto-enrolled, and I do not know whether the Government have any advertising planned to encourage people to volunteer, but it is an important point and I would be grateful if the Minister responded to it.
The other area that I wanted to touch on is the collection method for personal accounts. All businesses, and particularly small employers, are concerned about it. The Work and Pensions Committee dealt with the issue in March in its fifth report of the last Session. Recommendation no. 230 on page 56 of the report states:
“We would have expected the thinking on such a crucial keystone in the operation of the scheme, for employers, employees and the Authority and Board, to be more advanced at this stage, and we are deeply concerned that it is not.”
The report goes on to ask whether the PAYE scheme could not be amended to make life easier for employers. On page 55, the report states:
“Lord Turner admitted...that collections systems were ‘not an issue that we bottomed out fully’”.
Therefore, the Pensions Commission did not really begin to consider the issue, give it full scrutiny, or ask the Government to come up with proposals.
Businesses in general, as represented by the Federation of Small Businesses and Mike Cherry, are concerned about the matter. In our evidence session on 17 January, he told us that the federation is worried about the “on-cost” of creating a different system in addition to PAYE. It is not just the cost to businesses that are significant, which we all want to minimise given the extra 3 per cent. that will be added to employers’ payroll costs. There is also an issue of time.

Mike O'Brien: Just to seek clarification, I am following the hon. Gentleman’s argument, but I am not sure that I have understood one part of it. He is suggesting that PAYE should be the means of collection for personal accounts, but is he suggesting that it should be the means of collection for all other pension schemes?

Andrew Selous: No, I am not suggesting that. I will come back to that point, because the Minister touched on it when he gave evidence to the Committee. At the moment, I am touching on the issue purely of personal accounts and enrolment. That will cause a significant extra monthly administrative task for millions of small businesses up and down the country. I am pleased to see the hon. Member for Ochil and South Perthshire (Mr. Banks), a member of the Federation of Small Businesses. This may be an issue that he wants to furnish the Committee with his opinion on from his business experience.
There is not just a monetary cost in creating another system. It is about time as well, particularly for small businesses, which do not have the resource of a personnel department that can do these tasks. There are many issues that they have to deal with month by month of a regulatory nature, to fulfil all of their obligations. It is important that the monetary cost of collecting the personal account contributions and the time that it takes are both minimised.
I know that the Minister is aware of this issue, but I am nervous that we are proceeding through the Bill and do not yet have the clarification that millions of businesses up and down the country want. I will be grateful if the Minister tells us where the Department’s thinking is on this issue and what the plans are. Is it possible to ally the payment in some way with PAYE, notwithstanding the difficulties that he has already told us about?
Lastly, as far as the PAYE computer system is concerned, I turn to the evidence that the Minister gave to the Committee on 17 January. Having reread what he said in answer to question no. 154, which I put, he said that he wanted to be mindful—if I read his argument correctly—of not over-favouring the administrative systems for personal accounts as against other forms of pension contribution. That is a fair point because we want a level playing field.
This issue is about a balance of priorities. Given the scale of auto-enrolment that we are looking at up and down the country for millions of our fellow citizens and millions of businesses that have not contributed to pension funds on behalf of their employees, I think that there is a stronger counter-argument that it should be the Government’s top priority to have administrative ease by reducing both the cost and the time of collecting the personal accounts. We are not talking about making life more difficult for any other form of pension contributions. They are coping at the moment. I think that ensuring that our businesses and our economy are not unduly burdened should be the priority. I would be grateful if the Minister also addressed that point in his response.

Danny Alexander: Like the hon. Member for Eastbourne, I believe that the Government’s new approach to paying to save and to means-testing is a welcome step forward. I just hope that in the course of this debate the Minister will clarify one thing. If the body being set up is to produce a report, it would be useful if he put it on the record that, although it will not make any recommendations, and although the Government have made no commitment to act on anything in the report, none the less Parliament will have an opportunity to debate it. It is important to ensure that Members on both sides, who have expressed concern about means-testing, have a chance to debate that matter on the Floor of the House. The Bill will have been enacted, or at least all of the Commons stages will have been completed, before the report from this august body is published.
The hon. Member for South-West Bedfordshire made an important point about the lower age limit of 22. I echo his points about the fact that at least some young people aged between 16 and 22 will be disappointed to miss out on automatic enrolment. They might be embarking on a career, and not just changing jobs every few months, as often happens at that age. The ability for them to join the personal account would be useful.
The Association of Chartered Certified Accountants raised a point with me relating to the automatic enrolment date, which is provided for in clause 3(6):
“The automatic enrolment date, in relation to any person, is the first day on which this section applies to the person as a jobholder of the employer.”—
in other words, on the first day of their employment, as I read it. That seems sensible; it is how many existing occupational pension schemes—the person joins on day one.
In its briefing, the ACCA pointed out that some times when an employer automatically enrols someone on day one, and when that is also the date on which they first receive the information about the personal account, it might take a while for the employee to digest the information—perhaps a few weeks or a month. After that, they will decide whether to remain enrolled. It is quite clear from the Government’s forecasts, for the numbers of people expected to enrol in personal accounts versus the number of people in the target audience, that it is predicted that a significant number of people will choose to opt out. In those cases, presumably the employer will have to repay the contributions or work with PADA to do so. Might that not place an unnecessary additional burden on employers by providing for an additional administrative layer? I have some sympathy for the view that automatic enrolment should take place on day one, but we should consider the burden on businesses. I would like to hear from the Minister whether he or his Department have considered that point.

Mike O'Brien: Let me begin with the points made by the hon. Member for Eastbourne. I think that his NAPF figures relate to its members, whereas the wider issues on automatic enrolment also concern public sector employees and others. I have been advised that one in six employers are currently automatically enrolled.
On his broader comments on the Bill, I welcome the constructive approach that he has adopted. He indicated that the Conservative party has come some distance, and indeed so have others. That is all part of the process of discussing and evaluating the arguments, and of seeking to maintain a consensus. However, to use a phrase that the hon. Gentleman has often used and that I accept: a consensus is not a blank cheque. It is the ability to question, challenge and ensure that the debate is properly engaged in. I have no problem with that, and we have sought to respond to the debate and ensure that we move it forward, recognising that these issues must be properly discussed.
The hon. Member for South-West Bedfordshire asked a couple of questions. First, he asked, as did the hon. Member for Inverness, Nairn, Badenoch and Strathspey, why we do not have automatic enrolment from the age of 16. There are a number of reasons for that, but I want to make clear that a 16-year-old will have the right to join a personal account and to have an employer’s contribution. However, it will effectively be a voluntary joining by the 16-year-old should they, or indeed anyone up to 22 years old, want to do so.
The issue is about at what point to impose legal obligation on employers. We are conscious, as the hon. Member for South-West Bedfordshire indicated, that 16 to 22-year-olds change their employment regularly. Many are students and will be employed for quite short periods. Some will go over the £5,035 figure during their period of employment, but they will only be employed in a temporary job during that year. Therefore, particularly for 16 to 22-year—olds, there were a number of issues to take into account. As part of the process of consulting and discussing with employers’ organisations, we took the view that the creation of a legal obligation for automatic enrolment, in addition to the employers’ contribution that exists from the age of 16, would create a greater administrative burden for 16 to 22-year-olds than it would do for the majority of people over that age. We decided that 22 was a sensible age at which to impose that obligation on employers. To do so below that age would have produced an obligation that we felt to be somewhat excessive and probably, in some cases, likely to lead to burdensome steps, particularly where people were employed for short periods.
On the method of collection for personal accounts, the hon. Gentleman suggested, as did the Work and Pensions Committee, that we should look at linking it to PAYE and use one of the official mechanisms such as Her Majesty’s Revenue and Customs or one of the taxation bodies. We looked at that, and there are several problems with it. There is the obvious administrative issue that the tax system has a lot of work to do, and any additions increase the burden on the system, creating, by theirs own nature, more inefficiencies. It was not a good thing to do unless we had to, and we did not think that we did.
The more important question is about what this would do to the market. As the hon. Member for South-West Bedfordshire indicated, one of my key concerns was that we should create a system of personal accounts that complements, rather than competes with existing provision. There is a fair degree of concern, particularly among insurance companies and others, that we are creating a personal accounts system that will move into a market in which they themselves are competing.
If we were to give our personal accounts a competitive advantage in terms of the means of collection, by saying to employers, “If you have this pension provider or personal accounts, you will be able to use a more simple method of provision”, two things are likely to happen. First, the competition in that area of the market will say that personal accounts have a competitive advantage denied to them and that has been done by the state. More particularly, some employers might be tempted to trade down and to move into personal accounts in order to take advantage of that mechanism.
Our view is that it would be better to leave it to the various means by which pensions are collected today. We do not seek to create impersonal accounts with a product and an organisation that will have a substantial competitive advantage. We expect it to move into a market—for the low paid in particular, but also those on moderate incomes—in which, to be fair, there is not enough profit for most of the commercial sector.
Companies such as Aegon and Standard Life operate in that market, but only in niche parts of it. They want employers of a reasonable size that will give them a reasonable payment in return. Some areas of the market, particularly small employers, those who employ only one, two, three or four people—perhaps a chippie, a garage or a hairdressers—are often not sufficiently commercially viable to become involved with the various pension providers at the moment.
We expect personal accounts to move into this area. In a sense, it will therefore be accepting a position that is not for other commercial providers. It will say, “We will operate in an area in which, on the face of it, there is not a vast profit to be made. We will be available to all these employers, whether or not we would have done so if we were making a purely commercial decision.”
There will be an extra burden on the Personal Accounts Board and on personal accounts to provide something that the commercial organisations will not provide. We are therefore prepared to give them some facilitation and some encouragement, some compensatory support to go into that market, but we do not want to disrupt the overall commercial market. We do not want to create such a competitive advantage that employers are tempted either to get out of their current provision or to not even look at commercial private-sector provisions because the public-sector provision is so strongly competitive.
On the other hand, I can tell the hon. Member for South-West Bedfordshire that we are looking for collection to be linked simply to the payroll system. We are looking for PADA to create a low-cost, simple collection method. It knows perfectly well that it will be dealing with a number of employers that are very small in terms of numbers, that are often not well provided for in terms of accountancy support or backup; and they sometimes may not have higher educational qualifications. We therefore need to create a straightforward and simple low-cost method. We asked PADA to advise on the best method of providing that sort of simple and straightforward collection method, but we do not want to provide it with a competitive advantage.

Andrew Selous: I read somewhere that it is intended that personal accounts collection should be entirely online. Will there be an option? Some very small business might prefer to get the cheque book out once a month and send a cheque to PADA. Is that an option, or has it been totally ruled out?

Mike O'Brien: That has not been ruled out. It is a matter for PADA to consider. In some cases, it may prove not to be practical to do it only online. We have to consider the matter because some employers will not have mastered the online facilities that are available to many of us. We have to ensure that the garage owner, who is probably very good at mending cars but may not be very good at running a computer system or an accounts system, to continue his business and to employ the extra person that may be needed to do the paperwork. It has to be fairly straightforward.
The straight answer to the hon. Gentleman’s question is that we have not ruled out someone sending a cheque. We want to ensure that procedures are simple, but we also want to keep the costs down. We do not want to have idiosyncratic collection systems that drive up the cost for the rest of those participating. There is a balance to be struck.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) asked about a parliamentary debate, about which I can give no commitments. There will be a report back by the group which Age Concern suggested, and to which we responded positively. That will set out the background information. As he indicated, we are not looking for recommendations and we do not expect any in a report—we expect an elucidation of the nature of the debate and of the issues in the debate, rather than anything else. We give no commitments as to how we will respond. The response will be for his party, others in the Opposition and the Government to decide when we see the document. Debates and whether there shall be debates in the House of Commons are for the usual channels; I will not seek to intrude.
In the hon. Gentleman’s other question, he asked—a fair point—about the issue of when an employer is enrolling an employee on day one. The employee spends some time looking at the documentation and decides to opt out; that will happen. The key question is when the obligation arises for the employer to make payments into personal accounts. From what point does he have to start paying? That does not mean when he administratively puts in place the mechanism for him to pay for employee X. He may give employee X a week or two to decide whether he wants to opt out or not—but the employer’s obligation begins from day one. The employer has to be prepared to pay a contribution in but, provided that the procedures have been gone through, that it is known that an employee has opted out and that the opting out has been registered, then there is no obligation on the employer to start making contributions for someone who has opted out. The employer will, however, have an obligation as from day one to make contributions where a personal account system has been set up.
We will shortly come to the exception. All that I have said is “caveated” by an exception: it is possible to defer payments in from day one in certain circumstances, but we will come to that in the next clause. I hope that that deals with the issue for the hon. Member for Inverness, Nairn, Badenoch and Strathspey and that we will be able to approve the clause.

Question put and agreed to.

Clause 3 ordered to stand part of the Bill.

Clause 4

Postponement of automatic enrolment

Mike O'Brien: I beg to move Government amendment No. 117, in clause 4, page 3, line 1, leave out subsections (2) and (3).

Nicholas Winterton: With this it will be convenient to discuss the following amendment: Government amendment No. 118.

Mike O'Brien: I was referring to automatic enrolment from day one. However, there is an exception, which we come to now. What we have at the moment is a number of employers who provide perfectly good pension schemes for their employees. They make a contribution that may be above the 3 per cent. minimum that we are requiring. We want to cause the minimum possible disruption to current good-quality pension provision. Therefore, the objective of the clause is about where an employer is making a fairly good-quality contribution—we reckon at least 6 per cent., or double the minimum—and there is a deferral of entry.
For example, Tesco defer for a year at the moment before someone is automatically enrolled into their pension scheme. One has to be employed for a year and then one is automatically enrolled, as I understand it—I can be corrected if I am wrong. The result is that we would say that we do not want to change it unless we need to. However, one year is rather a long time and we would rather have a period of about three months. We do not want to put that in the Bill now and we have time to discuss it with employers and to consider the sort of period that will be best for ensuring that we keep a good quality provision. Some employers have very strong views; if they make a contribution of, say, 12, 13 or 14 per cent., as some good employers do, there may be an argument for giving them a longer deferral period.
We need to have a sensitive discussion with employers. We want to give ourselves flexibility in the coming months or possibly even a year or so. To have such a discussion would ensure that we get the detail of regulations right. Three months is the sort of period we are considering as a reasonable maximum but I am not being dogmatic about that as we are prepared to discuss it further as part of a consensus-building approach when we may consider some sliding scales or say that three months is right.
The amendments clarify what we are doing. We want employers using a deferral period to follow the arrangements set out in clause 3. We want automatic enrolment and we want it to be done properly; amendment No. 117 puts that clearly in the Bill so that employers know that there is another procedure.
Amendment No. 118 is uncontroversial. It clarifies the fact that employers can get a deferral period for a reasonably good scheme, but they cannot then switch the employees to another scheme that is not so good; in other words, they cannot manipulate the system. Employers can keep the deferral period provided that they keep their employees in the scheme for which they are seeking the deferral. They cannot use it to move in and move out of a scheme.
I doubt that many employers would be tempted to use that trick but we want it to be clear in the Bill that they cannot do so. If they seek a deferral it must be to enrol someone in a better quality scheme than the minimum. In those circumstances we accept that an element of deferral may be possible if current arrangements are in existence.
The provision would particularly benefit employers who have a high turnover, but it will mean that in order to take advantage of the clause and the amendments they would need to have a better quality pension scheme than the absolute minimum. There is a reasonable trade-off, which has been discussed with various stakeholders. It is fair to say that stakeholders have different views but what is proposed is a sensible compromise that enables us to make a reasonable provision.
I have looked with care at the percentage level at which we enable the deferral period to come in, given the employer contribution. It has been suggested that the level should be 9 per cent., 10 per cent. or 6 per cent. I chose 6 per cent. primarily because I want a minimum of churning, of decision making and of opportunity for people to decide to level down. The proposal is part of that process; the less we require employers who have reasonable provision to do, the better in terms of levelling down.
I hope that the Committee will accept the amendments and the clause.

Andrew Selous: I am grateful to the Minister for his explanation of the amendments and clause 4. The amendments are entirely sensible. Amendment No. 117 is a way of tidying up and ensuring that clause 4 is in line with what is stated in clause 3, and the strengthening provision of amendment No. 118 is sensible also, so I understand where the Minister is coming from. However, I have a couple of questions about the Minister’s introduction to clause 4. I am grateful for his comments on clause 4 generally because he has provided a lot more information than I have been able to obtain, either from the explanatory notes or from the House of Commons Library brief. I would be grateful if he provided a little further clarification on a number of points. He mentioned, by way of example, the Tesco scheme. If I understood him correctly, he said that employees are not enrolled in the scheme at all for the first year, but that after that year they are and it would pass his test of what counts as a good scheme. I am unclear whether Tesco would retrospectively make contributions for their employee for that first year. Perhaps he can respond later, unless he wants to intervene now?

Mike O'Brien: I will not pre-judge whether the Tesco scheme will fit our criteria or not, I want to look at it in more detail. I have had discussions with Tesco, it runs a defined contribution scheme on which employees are auto-enrolled after a year. In those circumstances Tesco would not make back-dated contributions to the start, but from the point of enrolment. In terms of the people who would be automatically enrolled if we moved to three months, they would receive their employer’s contributions as from three months, not as from day one. There would be the option of a deferred period for automatic enrolment and contributions.

Andrew Selous: I am grateful to the Minister for that clarification. I must admit that when I first looked at clause 4, I assumed that schemes that paid an employer contribution of 3 per cent. or more would fit the Minister’s criteria for an acceptable scheme. I now realise that that is not the case and we shall have to wait for specific regulations from the Minister on the exact balance of employer contribution, when the scheme kicks in and various other factors to determine whether a scheme will pass a reasonableness test. He mentioned a 6 per cent. contribution figure; I do not think that he totally committed himself to that, but that is perhaps a helpful general clarification for employers in this area.

Mike O'Brien: I am fairly clear that 6 per cent. is the level at which I want this to kick in. The pressure on me, in terms of the views of stakeholders, has been that we should set the figure higher rather than lower. I have tended to take the view that in order to minimise disruption for employers and levelling down, we should set it at the lower level of about 6 per cent.

Andrew Selous: We are going to have to take on trust what the Minister is doing. I have no reason not to extend trust to him in this particular area. In terms of not wanting to disrupt existing good provision as the Minister suggests, we are in agreement with him. We shall have to wait to see the specific regulations that he brings forward, having had further discussions with those in the industry—employers and specialist interest groups.

Danny Alexander: Like the hon. Member for South-West Bedfordshire, I think that the amendments are sensible. They are intended to strike the right balance between not giving employers undue incentives to level down and preserving the right of pension holders, employees, to get a decent pension.
I have one question to ask the Minister. What process does he have in mind by which employers will register to take advantage of the deferral period? In the light of the conversation that we had on the previous clause, there will clearly be some benefit to doing so. The Minister hinted that it would be a quasi-automatic process based simply on employer contribution. Will there need to be a one-off registration process administered by PADA, for example, or will a record of the level of employer contributions mean that a deferral applies? Businesses will have to be notified if they are eligible for the deferral period, so that they can make use of it if they need to. I should like a little more detail on the practicalities and reassurance that they will not be unduly burdensome in delivering a potential benefit to employers.

Mike O'Brien: The whole idea is that the employer can self-certify his scheme. There will not be a registration process. We want to make the rules explicit so that he can make a judgment that his scheme enables him to self-certify, and he will then be responsible for it. He will be able to get advice if he wishes, but that is essentially the approach.
PADA would not give him a certificate, because in a sense it is just another provider, although it has wider obligations. If a certificate were to be issued, it would have to be by the Pensions Regulator, but we do not intend that to happen. The employer will examine his scheme and see whether he is making contributions above a certain level. We want to make the rules as clear as possible so that he can say, “Right, I don’t have to be concerned about having to enrol everyone and set up a pension scheme on day one. I have got my three-month deferral period”—for example—“before I have to enrol everyone, because I go over the level.”

Julie Kirkbride: The Minister has put some good arguments for his plan. From the opposite perspective, why is he excluding schemes that make contributions of between 3 per cent. and 6 per cent.? After all, those are companies that have been doing the right things and providing something for their employees by making a contribution that, if an employee stays there for a considerable period, will make a considerable difference to their pension pot because it is above the 3 per cent. state minimum. If there is to be a three-month waiting period, why cannot all schemes that already exist qualify?

Mike O'Brien: That is a good point. Part of the process of deciding on the level was to consider all the circumstances of pension schemes, because they have administration costs and running costs. It would be very easy to set up a pension scheme with a high running cost. For example, personal accounts could have 0.5 per cent. or 0.3 per cent. running costs in the long term. Employers’ contributions can be used up in that running cost, so the employee does not get the benefit of them. In order to create therefore a cushion, we need a certain amount of flexibility, and some trade unions, for example, are concerned that the level at which the exemption—the provision—kicks in should be higher than 6 per cent., because the cost of running the system could be quite high. Some systems, if they allow a lot of choice or are complex, will have high administration costs.
Essentially, the answer to the hon. Lady’s question is that I do not want to create a set of complex rules that say things like, “You can self-certify if your contribution is at 4 per cent. and your administrative costs—your pension scheme—remain at 0.3 per cent.,” among other conditions. I would rather have a clear and straightforward set of rules, so that a small employer who has enrolled his employees in a scheme that operates before 2012 and is fairly straightforward can just say, “They’re all signed up, I’m paying over 6 per cent., I can self-certify, it’s fairly simple and straightforward. That gives me a deferral period of this long, and I know what the situation is.” He does not have to get advice from an independent financial advisor. The issue is about getting the balance right between that level of protection against administrative costs, and making self-certification as simple and straightforward for a small employer as I possibly can.

Amendment agreed to.

Amendment made: No. 118, in clause 4, page 3, line 8, leave out from beginning to ‘within’ in line 10 and insert
‘Where a person becomes an active member of a scheme in accordance with regulations under this section, the employer must not take any action, or make any omission, by which the person ceases to be an active member of the scheme’.—[Mr. O'Brien.]

Andrew Selous: I beg to move amendment No. 14, in clause 4, page 3, line 15, at end add—
‘(7) The length of any such postponement shall not exceed 6 months.’.
The amendment would add new subsection (7) to the clause and stipulate the maximum time for which automatic enrolment could be deferred. The Minister has mentioned three months on several occasions during earlier debates, which is half the time that the amendment stipulates, at six months. The amendment would ensure a level playing field for all employers, because there is a competitive advantage for employers who do not make any automatic enrolment contributions to a scheme. An employer, in a business in which margins are tight, may compete against another who does not make such contributions, and 1 or 2 per cent. can make a difference to winning business and getting orders.
Paragraphs 2.38 and 2.39 of the regulatory impact assessment mention a possible three-month limit for the postponement of automatic enrolment, but it became clear from our earlier debate that we will have to wait for regulations. We would feel more comfortable if there was a time limit in the Bill, so it would be helpful if the Minister said when he expects to bring forward regulations on clause 4, because it raises significant issues, particularly about competitive advantage for employers.

Mike O'Brien: I have been asked when the regulations were likely to be brought forward. We would want to have a proper discussion with stakeholders, and it will be some time before we are in a position to do that. I cannot give a clear view on a time scale, but I would guess that we would be able to have that consultation during the course of this year. We need to have discussions with employers, and to have the regulations drafted. I would like, then, to consult on the regulations; so it will be the early part of next year before anything is brought before the House. Bear in mind that we have a time scale of 2012, providing that people have sufficient warning and the ability to contribute to the discussion.
I am afraid that I would reject setting a six-month period, although I assume that the amendment is a probing one in any event, so I will not spend any more time trying to rebut the arguments. I understand the position that the hon. Member for South-West Bedfordshire has taken.

Andrew Selous: What the Minister said when he introduced the debate on clause 4 was helpful. In light of what he said then and what he has said now, particularly about the time scale for bringing out the regulations, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4, as amended, ordered to stand part of the Bill.

Clause 5

Automatic re-enrolment

Danny Alexander: I beg to move amendment No. 80, in clause 5, page 3, line 33, leave out subsection (6) and insert
‘The automatic re-enrolment date shall be 1st April of each year’.

Nicholas Winterton: With this it will be convenient to discuss amendment No. 15, in clause 5, page 3, line 34, leave out from ‘that’ to end of line 35 and insert
‘fall at the beginning of the tax year in any relevant year for all jobholders.’.

Danny Alexander: I look forward to the first contribution of the Under-Secretary of State for Work and Pensions to the Committee, in response to the amendments in the clause. I do not know whether he is good cop to the Minister’s bad cop, or maybe it is the other way around. We shall see.
The clause deals with automatic re-enrolment. It makes a great deal of sense to ensure that there is a regular opportunity for people who opt out to reconsider their position to be automatically re-enrolled. The amendment is fairly simple, so I do not intend to dwell on it for a great length of time. It is to try to establish that the timing of automatic re-enrolments be of maximum convenience to the employer, for reasons of administrative efficiency that we have been discussing previously. I think that that is also the purpose of amendment No. 15 tabled by the Conservatives. I note, for example, that the Engineering Employers Federation suggests that it hopes that that will include allowing employers to undertake the process on a fixed date, such as the start of the tax year.
Amendment No. 80 gives 1 April, the start of the tax year, as the suggested date, rather than the anniversary date of when the individual chose not to be auto-enrolled. If it was on that anniversary, automatic re-enrolments could go on in large companies almost every day of the year. One would wish to avoid that, in the interests of administrative efficiency. Whether the Government choose to accept the amendment or not, I hope that the Minister will accept the principle that automatic re-enrolment should fall on a specific date, perhaps every year, and that choosing a date, for example at the start of the tax year, that fits in with other changes that employers might be making in tax and salary rises would minimise the administrative burdens on employers. That would make the automatic re-enrolment process easier and, of course, more likely to go without a hitch.

Gordon Banks: To clarify a point, is the hon. Gentleman saying that the individual enrolment day he is proposing could be different for every company, and that it would be a date that would suit, let us say, the financial calendar of an individual company?

Danny Alexander: It is good to hear from the hon. Gentleman who, as has been said before and as he made clear in the evidence sessions, is very knowledgeable about matters relating to small businesses. I would take his advice on that point.
Clearly some businesses operate tax years on a different basis, so the approach set down in the Conservative amendment might be preferable to the fixed calendar date in amendment No. 80. The point that I am trying to establish is that there should be a fixed date every year, two years or whatever, when automatic re-enrolment takes place at a date that is most convenient to the company. The start of the tax year would seem an obvious date. That is the simple point that I am trying to make. I do not think that I need to dwell on it .

Andrew Selous: I agree with the hon. Member for Inverness, Nairn, Badenoch and Strathspey that our amendment No. 15 is similar to amendment No. 80. He said that his amendment was inspired by the Engineering Employers Federation. Ours has also been in part inspired by what it had to say. I note that the recommendation of the Work and Pensions Committee to the Government was that they should adopt this recommendation that re-enrolment should take place for all employees en masse at the end of the tax year in order to reduce the administrative burden on employers.
I am pleased to note that the Government in their response to the report said at paragraph 130:
“We have been working closely with employers and their representative organisations to design a scheme that minimises the burdens on business.”
I am sure we are all keen to support that. At the moment, employers would have to track the start date and 22nd birthday of all their employees at three year points from all those dates. Instead of having all the dates flagged up on a computer, with letters going out to everyone and re-enrolling everyone in one go, and instead of it being a simple one-hit task that is done once a year, it will be a monthly problem for employers.
Again, I make no apology for repeating that we are bringing the world of pensions and contributions to some very small businesses. The Minister mentioned a garage earlier. Think of the small hairdresser or the very small sandwich bar with one or two employees. Those are not organisations that have large personnel and compliance departments that can make sure that this is done easily. If the Minister does not like amendments Nos. 15 or 80, I hope he will have something pretty convincing to say to the Committee about how he will make this work simply and effectively and with the least hassle.

James Plaskitt: It is now my turn, Sir Nicholas, to say how nice it is to serve under your chairmanship and to deal with the amendments that have been tabled on clause 5. I am grateful to the hon. Members for moving them in the way that they have. We have already established that there is strong support across the whole Committee for the concept of automatic enrolment. I hope it therefore follows that there is equally strong support for the principle of automatic re-enrolment. The issue is about the timing and the way in which we can minimise the burdens for employers in carrying out this equally important part of the process we are establishing here.
There will, of course, be perfectly reasonable reasons why some employees might wish to opt out. But it is therefore important that a prompt is also built into the system that gives them once again the chance to consider whether they should be back in the system. The best way of doing that is by having an automatic re-enrolment process at a suitable interval. That is why these clauses include provisions that enable the Government to require the periodic re-enrolment of job holders who are not participating in a qualifying pension scheme——a timely reminder, through the process of re-enrolment, could make all the difference for some employees. Without that facility, they might not again consider revisiting the decision that they have made.
We are conscious of the burdens that re-enrolment places on employers and on schemes. That is why we decided that re-enrolment should happen not more frequently than once every three years and why we placed that safeguard in the Bill. Support for that stance came during our evidence sessions from the consumers, represented by Which? and from employers, represented by the CBI. They both endorsed strongly the three year re-enrolment period.
The amendments would establish a link between the re-enrolment date and the beginning of the tax year. Amendment No. 15 would do that every time the enrolment is triggered. Amendment No. 80 would establish re-enrolment on the same basis, but trigger it every year. Having re-enrolment every year could triple the employer burden compared with our proposal if people who have persistently chosen not to save still choose not to save and opt out 12 months later. Instead of a three yearly peak in activity, the peak would be annual.
We hope that people will stay with pension saving, but there is a balance to be struck between periodic re-enrolment when a person’s circumstances might have changed and virtual harassment. Re-enrolling job holders every year would be overdoing it. There is a risk that the message could become so routine for those individuals that it is devalued rather quickly and so more readily dismissed than it would be were it to come up every three years.
I emphasise that we are still considering the implementation of re-enrolment and the process by which it will occur. As the hon. Members who have spoken on the issue have indicated, we need to strike the right balance between the benefits for job holders and the impact on employers. We need to fully understand the impact of re-enrolment on employers and on schemes. I have therefore asked the personal accounts delivery authority for advice on this issue and on how it would be best implemented. We also need to discuss with other stakeholders how best to introduce the policy so that it minimises the burden on employers and on schemes.
In effect, there is a range of options on the timing of re-enrolment which could be used to smooth its administrative impact over a calendar year, a tax year or some other period. The hon. Member for Inverness, Nairn, Badenoch and Strathspey suggested that one date could be chosen on which all employers must do automatic re-enrolment. A certain logic points towards the tax year, but that might not be the appropriate single date for all employers. Some will have different forms of financial years. My hon. Friend the Member for Ochil and South Perthshire noted that the case for simplicity in respect of some employers might point to one date, but the same simplicity argument might point to another date for another employer. While the principle of one date has a clear attraction, moving from that to saying that it should be the start of the tax year will not necessarily meet the criteria that employers reasonably have in this area.
There is also the option of aligning the three year automatic re-enrolment to the date on which the individual opted out. That would create another set of complexities for many employers. Those with highly automated payroll systems might not find it at all burdensome. They would simply have to log, at the point of the individual opting out, a time three years hence when they will automatically be re-enrolled if they are still with the firm. That would not be so easy for smaller companies, which do not have such sophisticated processes. Those are the reasons why we need to go on discussing the matter as we are committed to doing. However, by tying the process of re-enrolment to the start of the tax year, the amendments would perhaps create a peak in the underpinning administrative activity, which would affect employers and schemes, and incur associated costs.
The Government have already made a public commitment in the consultation response to the White Paper to take account of further analysis and advice from the delivery authority, and to consult with stakeholders and the industry, before we take our final decisions on the actual period of, and mechanism for, automatic re-enrolment. I hope that with those reassurances, hon. Members will be happy to withdraw their amendments.

Danny Alexander: I am grateful to the Minister for that full response. I am pleased that he is attracted at least to the idea of having only one date in the period. There are some attractions to that proposal, so I am pleased that the Minister is consulting business and that he has asked PADA for its advice—that is the right approach.

Andrew Selous: Does the hon. Gentleman agree, as I hope the Minister will, that the scheme needs to be flexible and permissive rather than prescriptive? Having heard the debate, does he agree that amendments Nos. 15 and 80 would not do that job? However, I hope that he will be satisfied like me with a ministerial commitment to come back with another draft following his consultations. We want the scheme to be flexible and permissive, to give maximum flexibility and to reduce burdens on businesses.

Danny Alexander: The characteristics that the hon. Gentleman set down for dealing with the matter are exactly the kind of thing that we are looking for. I believe that it will be dealt with more by regulations than in the Bill, but the Minister spoke about listening to advice from external sources such as business organisations and PADA, so one hopes that we will come to the same conclusion. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

James Plaskitt: I beg to move Government amendment No. 119, in clause 5, page 3, line 36, leave out ‘(2)’ and insert ‘(6)’.
This is a drafting amendment to correct the construction of the clause. It ensures that the correct reference is in place. In effect, it will simply alter a number, so I hope that it will be agreed to as a technical drafting amendment.

Amendment agreed to.

Clause 5, as amended, ordered to stand part of the Bill.

Clause 6

Jobholder’s right to opt in

Mike O'Brien: I beg to move Government amendment No. 120, in clause 6, page 4, line 6, leave out subsection (4).

Nicholas Winterton: With this it will be convenient to discuss the following amendments: No. 70, in clause 6, page 4, line 12, at end insert—
‘(5A) The regulations must provide for the notice—
(a) to include information about the effect in relation to jobholders of giving notice under this section, and
(b) to be signed by the jobholder’.
Government amendment No. 122

Mike O'Brien: Government amendment No. 120 removes the restriction on jobholders that prevents them from opting in more than once every 12 months. Government amendment No. 122 enables the jobholder to request access at any time to workplace pension saving with an employer contribution, but does not oblige the employer to act on more than one request every 12 months. Should the employer choose to accept an additional notice made within that period, he must enrol the jobholder in accordance with the prescribed opt-in enrolment process. This means that employees cannot be disruptive by playing hokey-cokey with the pensions system, opting in and opting out.
If someone has opted out, that person is entitled to opt back in at some point during the year. However, as the employer need not accede to an opt-in request more than once during the year, the employee can make such requests, but the employer does not have to act upon them more than once. This will work as follows. Once a year, the employer will accept employees opting in and, at that date, will opt in those who have requested to opt in. This is a fairly straightforward process, and the amendments clarify the situation in respect of the way in which employers would be able to operate.
Amendment No. 70 seeks to prescribe the process by which a jobholder is able to trigger an opt-in, and obliges notice to be given in a particular form, signed by the jobholder, with particular information being provided. My reason for opposing this is not that I particularly object to the provision proposed by the amendment, but that I would rather this be done in regulations after we have consulted with the employers’ organisations and have had a further opportunity to look at how this process will work in detail.
The terms of a particular form are, I think, better dealt with in that way, unless it is a form of great substance, as in the case of the Police Criminal Evidence Act 1984. The way in which a form is laid out may change from time to time, and I think it is much better to deal with it in regulations, rather than trying to put it in the Bill. I have no great objection in principle to what amendment No. 70 seeks to do: I just think these issues are better dealt with elsewhere, and we will come to deal with them in terms of the way in which various forms might be dealt with—I think that is in clause 8, “Information to be given to jobholders”.

Andrew Selous: I am grateful to the Minister for his explanations in relation to Government amendments Nos. 120 and 122. They seem entirely sensible and I understand what the Minister is trying to do with them. I was pleased to hear the Minister say that he was not opposed to the principle of amendment No. 70. Our reason for tabling it is to seek clarity, to help the employer have clear records about who has and has not opted in, and perhaps to prevent any come-back against the employer if, at a later date, the employee says, “What is this deduction on my wage slip at the end of the month? I don’t remember authorising you to take any more money from me”. It is just to give that degree of protection to the employer and have a proper audit trail. That is where we are coming from, but the Minister has said that he is sympathetic to those type of actions and seeks to clarify how that would happen by way of regulation at a later date. With that commitment from him, I do not wish to press amendment No. 70 to a vote.

Amendment agreed to.

Mike O'Brien: I beg to move amendment No. 121, in clause 6, page 4, line 15, after ‘qualifying’ insert ‘scheme which is a’.
The effect of the amendment would be to ensure that where a personal pension scheme is concerned under the provisions it must meet the definition of a qualifying scheme. With regard to how it would operate, clause 6 effectively extends the benefits of workplace pension savings for job holders on a voluntary opt-in basis. Job holders who opt in under the provision will be enrolled in an automatic enrolment scheme.
Subsection (6) enables the Government to regulate to allow an employer to use a qualifying personal pension scheme in place of an automatic enrolment scheme. That might benefit some employees. Indeed, a number of employees prefer a personal pension scheme for their own reasons. Providing that they are going into a pension scheme, I am content that they go into a personal pension scheme of their choice.
The amendment corrects the drafting for the provision that aligns with clause 3(5) and clause 5(5), which provide for the same in respect of automatic enrolment and automatic re-enrolment. That ensures that where a personal pension scheme is concerned under the provision, it must meet the definition of a qualifying scheme. I hope that hon. Members will be able to accept the amendment.

Amendment agreed to.

Amendment made: No. 122, in clause 6, page 4, line 17, at end add—
‘(7) Subsections (8) and (9) apply where a jobholder becomes an active member of an automatic enrolment scheme in pursuance of a notice under this section and, within the period of 12 months beginning with the day on which that notice was given—
(a) ceases to be an active member of that scheme, and
(b) gives the employer a further notice under this section.
(8) The further notice does not have effect to require the employer to arrange for the jobholder to become an active member of an automatic enrolment scheme.
(9) But any arrangements the employer makes for the jobholder to become, within that period, an active member of such a scheme must be made in accordance with regulations under this section.’.—[Mr. O’Brien.]

Clause 6, as amended, ordered to stand part of the Bill.

Clause 7

Jobholder’s right to opt out

Andrew Selous: I beg to move amendment No. 71, in clause 7, page 4, line 25, after ‘refunded’, insert ‘to the jobholder’.

Nicholas Winterton: With this it will be convenient to discuss amendment No. 72, in clause 7, page 4, line 28, after ‘refunded’, insert ‘to the employer’.

Andrew Selous: These are two brief amendments that seek to clarify what is on the face of the Bill. Currently, subsection (3) deals with contributions being refunded, as does subsection (4), but it is not entirely clear that contributions are to be refunded to the job holder and the employer respectively, and that is all that the amendments seek to do. For the avoidance of doubt and possible litigation, when money is to be paid back, it is important that it is clear to whom it is going. I hope, therefore, that the two amendments will find favour with which ever Minister is to respond.

Mike O'Brien: The clause ensures that jobholders automatically enrolled into work place pension savings schemes, but who decide not to save, have the right to opt out. People’s circumstances and preferences vary, and it is important that individuals remain free to decide whether private pensions saving is for them. A jobholder can opt out by giving notice in accordance with regulations to be made under subsection (2). The intention is that any contributions paid by the jobholder before their notice to opt out takes effect will be refunded to the jobholder. Similarly, any contribution paid by the employer during that opt-out period will be refunded to the employer.
The amendments would, however, make the jobholder the only possible recipient of a refund of a jobholder contribution, and the employer the only possible recipient of a refund of employer contributions. Although we can all agree with the intention, the implications up putting that in legislation for existing schemes, of which we need to take account, are immense. We cannot be certain at this stage about how the refund of contributions will operate or about the full implications for tax purposes. However, the first destination of a refund of jobholder contributions might need to be the jobholder’s employer in order to enable income tax to be deducted from earnings, which is not a pension contribution and, therefore, no longer entitled to tax relief.
By preventing the refund going the employer in the first instance, amendment No. 71 would require a scheme to know all the relevant details for all individuals, and would require those individuals, were they to receive a refund direct, to make arrangements to pay tax due on what are now earnings. With regard to employer contributions, the intention is that employers engaging with personal accounts should receive a refund of their contributions if the jobholder opts out during the opt-out period. However, amendment No. 72 would apply to all employers regardless of what scheme they use to discharge their duties. Some employers do not require refunds when a jobholder opts out. For example, some choose to leave employer contributions at the disposal of the scheme trustees when a worker opts out, either as a contribution to administrative costs, or to be used by trustees for the benefit of other members. The problem is that that is a highly technical area, and if we start making changes to current schemes, we would need to approach it with an enormous degree of caution.
Procedures for handling the return of contributions will be a matter for detailed consultation with stakeholders, including the delivery authority, as we develop the regulations. They will set out the time limits for refunds and specify how they are calculated and paid. That approach will also ensure that tax issues are fully addressed. However, I want to make it clear that whatever the regulations prescribe for the process, the refund due to the jobholder will find its way to the jobholder, and those due to the employer to the employer. We must ensure, however, that in seeking to do something that might sound simple and straightforward, we do not add a level of unintended complication and difficulty. Unintended consequences are a habit with parliamentary legislation, unless we approach with care, particularly when dealing with pensions regulation. I hope that the hon. Gentleman will consider withdrawing his amendment.

Andrew Selous: Notwithstanding the technical arguments that the Minister set out clearly for why amendments Nos. 71 and 72 should not be adopted, I am grateful to him, because he did say, at least twice, that the ultimate destination of the contributions should be the jobholder and employer respectively. I think that his words will count if there is any dispute about the ultimate destinations of those moneys. However, I take on board his points about the various interim destinations. In light of that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Danny Alexander: I wish to raise a couple of points in relation to clause 7 on clause stand part. This is an important clause because the right to opt out is a critical part of ensuring that the automatic enrolment system operates properly. Making it easy for job holders to opt out is clearly important and the drafting of the clause emphasises that point. However, within the right to opt out, we find some of the issues that we will come to later in the Bill in relation to enforcement. For example, potentially unscrupulous employers—who we hope are a small minority, but they do exist—could persuade or put pressure on individuals to exercise the right to opt out.
At the moment, the drafting of subsection (7)(a) requires two things. First, that the jobholder must receive information about the consequences of opting out, and secondly that they must sign their name. In amendments Nos. 81 and 82, which are not selected but are on the amendment paper, we suggest some additional safeguards: that the jobholder would need to give notice in writing themselves, and indeed that they may also register it with the enforcement body. Those measures may go too far in terms of the burden on the jobholder, but I urge the Minister to reflect on whether the degree of engagement that the clause requires of the jobholder in the opt out process, is sufficient to ensure that it is a genuinely independent action taken by them. Furthermore—and this was the reason for suggesting a reference to the enforcement body—there could be some action that the jobholder may have to take outwith the context of their employment relationship. It would mean that they have to do something else other than, in the case of the case of the unscrupulous employer, simply sign a piece of paper that is presented to them by the employer that says “I wish to opt out”.
I am not necessarily seeking an answer from the Minister now on how he would seek to do that, but I urge him to reflect on whether the provisions in the Bill about the process that the jobholder must go through, are sufficient to ensure that the balance between making it easy for the jobholder to opt out and ensuring that they act independently, is right. I am not sure that it is right in the current drafting of the clause, but I look forward to hearing the Minister’s response.

Andrew Selous: I shall be brief. I recognise the issue raised by the hon. Member for Inverness, Nairn, Badenoch and Strathspey about employers possibly putting improper pressure on their employees to opt out. We are right to be mindful of that issue. We have tabled a new clause on that very issue so there will be a further chance to debate those points.

Mike O'Brien: The point that the hon. Member for Inverness, Nairn, Badenoch and Strathspey raises is a good one. I will reflect on what he said. We are not looking to make opting out so unduly burdensome that people find it difficult to make the decision that is right for them. At the same time, we do not want employers to be putting a lot of pressure on employees to opt out.
We focused on ensuring that the employer will make sure that people are automatically enrolled and that there is no way in which the employer could prevent that. The hon. Member is suggesting that that has happened: that people are in, and now there is pressure to get them to opt out. We want to ensure that that does not happen either. One obvious way is through trade unions reporting such behaviour. There will also be considerable publicity around 2012 and thereafter so most employees will know, irrespective of whether they are members of trade unions, that they have rights to opt into a pension system.
We will also consider the forms that the employee will have to sign to opt out. We will consult on this, but that will probably be one way in which we make sure that the form makes it clear that people have a right to remain, that employers should not force people out and that people will have the protection of the law if employers seek to do so. That said, the hon. Gentleman is right that the decision to opt out must be genuinely intended. I shall reflect on his remarks and on the new clause that the Conservatives tabled to deal with the issue. We will have an opportunity later in the Bill to consider the matter further.

Nicholas Winterton: I should have anticipated that the hon. Member for Inverness, Nairn, Badenoch and Strathspey would want to raise matters on the stand part debate, because he had two amendments that were not selected, although they were not selected for very good reason. He was right to raise those matters in the stand part debate and I apologise for hesitating to call him when he rose.

Clause 7 ordered to stand part of the Bill.
Further consideration adjourned.——[Mr. David.]

Adjourned accordingly at twenty-two minutes to Six o’clock till half-past Nine o’clock on Thursday 24 January.